Guess what? Contract signings in the US housing market picked up smartly last month.
That’s news. Really it is. Maybe not headline news during a week of wild geopolitical escalations, central bank meetings and top-tier data releases, but news all the same.
The NAR’s gauge of pending US home sales, you might recall, slipped to the lowest level on record in May. Any rebound would’ve been welcome, which means June’s near 5% increase — more than double the expected recovery — was cause for celebration.
All four regions managed to notch gains over the month.
“The rise in housing inventory is beginning to lead to more contract signings,” NAR Chief Economist Lawrence Yun, ever the optimist (when he’s commenting for press releases anyway) remarked, adding that the intensity of multiple offers is fading, putting buyers “in a more favorable position.”
Buyers would tell you “favorable” remains a highly relative term. Rates are onerous (at least if you’re not old enough to remember the last time money wasn’t free) and prices are perched at or near records pretty much everywhere. Earlier this week, an update on the key national price gauges showed property values in the US posted an 11th consecutive YoY gain in May.
Separately, the MBA on Wednesday said the 30-year fixed was unchanged at 6.82% over the latest week. Mortgage apps fell. “Borrowers may be waiting for signs that mortgage rates will drift lower as the Fed begins to cut short-term rates,” MBA chief economist Mike Fratantoni said, adding that buyers are still facing “affordability challenges.”
Sorry to repeat myself, I did comment this elsewhere already today, but as a newbie, I would like to understand why a 5% interest rate is onerously high now, when it was historically low in the 90s and we had a dotcom boom.
The bigger problem is this:
https://www.visualcapitalist.com/median-house-prices-vs-income-us/
5% is not intrinsically high or low, it is simply a question of what a buyer can afford at a given rate.
If you have $2500/mo for mortgage payments, 5% rate on a 30 year mortgage lets you afford a $461K house, while at 3% you could have afforded a $588K house, and at 7% you can only afford a $372K house. (simplified: ignoring down payment, other costs, basically using loan principal as a proxy for how much house you can afford.)
So as rates have gone from 3% to 7% the hypothetical buyer has seen the house he can afford go from $588K to $372K, while the house he wants has gone from $500K to $600K.
When comparing to the 1990s, you have to factor in house prices then.
I’m at five percent and it’s onerous because I’ve only seen 2-3 percent and I wanted to upgrade, not downgrade.